Germany's Economic Weaknesses

NYT, via Mark Thoma:

But the fact is that, even without a German-led bailout, the German economy is poised for a slowdown. Many economists expect growth to be well below 3 percent this year; my own guess is that it will come in around 1 percent.

Such expectations are hardly secret, and they reinforce the German public’s fear of aggressive action right now. After all, the international community appears unaware of the sobering experiences that Germany’s taxpayers have gone through in the last two decades. By the middle of this decade, the equivalent of up to 100 percent of Germany’s annual G.D.P. will have been spent to finance German reunification alone. This will have amounted to an annual contribution of 4 percent of G.D.P. for nearly a quarter century.

Most of it is being financed through a slowdown in government investment in western Germany and limits on social spending, higher taxes and social contributions. A third of that investment, however, has been shifted onto the shoulders of the next generation as debt. In fact, the country’s debt-to-G.D.P. ratio has risen from just below 60 percent to almost 80 percent, a bearable number in a strong economy but dangerously high should things slow down.

Is now a time to rejoice? Is Germany the star performer, the role model to be emulated? Or is the start of 2012 just a snapshot, showing a series of lucky coincidences that should not be misread as structural strengths? With some qualifications, I believe it is the latter.

This situation is scary, but thought-provoking.  I don't know how it will play out, but the focus will remain on Germany, and it's reaction to the crisis.